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WASHINGTON — When the financial crisis deepened in September 2008, Federal Reserve leaders
initially viewed it as a problem that would reverse itself. Janet Yellen, now the new Fed
chairwoman, was the earliest voice for aggressive action, transcripts released yesterday show.

Like her colleagues, Yellen didn’t foresee the huge spike in unemployment or a profound
recession around the corner in the aftermath of the bankruptcy of Lehman Brothers, the event that
triggered the economic crisis of 2008.

However, within weeks, she recognized the threat as more than storm clouds and became the most
forceful advocate of what would become efforts to stimulate the economy through unconventional
means.

The legacy of those efforts remains today, as it falls to Yellen to pull back on the massive
bond-buying program that was used to drive interest down in an effort to spur more consumption and
lending. That program still is unfolding at a pace of

$65 billion a month, and Yellen must find a way to rein it in that is least disruptive to
nervous financial markets.

It’s a fitting challenge, because the transcripts of the Fed’s 2008 meetings show her as a vocal
advocate for an aggressive approach almost from the outset.

The Fed releases the transcripts of its meetings annually on a five-year delay, and those from
2008 were highly anticipated, because they would provide the first unvarnished view of discussions
that occurred as the financial markets were in a state of near collapse.

Among the details the transcripts reveal is that while the bank’s governors discussed at length
how the Fed’s actions might affect the markets, there was no discussion of what political impact
those actions might have, even though a contentious presidential election was less than two months
away, one that would put a senator from Illinois, Barack Obama, in the White House.

That’s likely to prove meaningful in the current congressional debate over whether to audit the
Fed’s monetary policymaking meetings.

When the interest-rate setting Federal Open Market Committee, a rotating panel of Fed bank
presidents and governors, met on Sept. 16, 2008, a day after investment bank Lehman Brothers filed
for bankruptcy and the very day the Fed rescued insurance behemoth American International Group,
there were worries about market turmoil but no predictions of the deep economic downturn that
followed.

Yellen was then president of the San Francisco Federal Reserve; she’d become Fed vice chairwoman
in 2010 and then the first woman to lead the Fed this month. She argued forcefully against cutting
interest rates, predicting that the economy would show “a little more strength in 2009” after a
slowdown in the second half of 2008.

Then-Fed Chairman Ben Bernanke, hailed for his leadership during the crisis, closed that meeting
by suggesting it was likely that the economy was already in recession. But he argued against
another interest-rate cut, and the rate stayed at 2 percent.

That all changed just three weeks later, when the Federal Open Market Committee met on a
conference call on Oct. 7. The members were asked to get behind a plan in which the Fed, the
European Central Bank and four other central banks would announce a surprise coordinated drop in
lending rates, a positive shock for markets and the economy.

By then, Bernanke had determined that it was “more than obvious that we have an extraordinary
situation,” adding that virtually all markets “are not functioning or are in extreme stress.” The
deteriorating conditions demanded a rate cut, he said.

“I should say that comes as a surprise to me. I very much expected that we could stay at 2
percent for a long time,” he told the other members of the committee.

During the call, Yellen emerged as the committee’s strongest voice for even more action.

“In my opinion, a larger action could easily be justified and is ultimately likely to prove
necessary,” she said.

Three weeks later, at a regularly scheduled two-day meeting, members for the first time began
discussing quantitative easing, the controversial program under which the Fed purchased government
and mortgage bonds in an attempt to simulate what would be negative interest rates.